A retired school teacher from Mysore who had deposited ₹1.33 crore in cash across bank accounts and had not filed an income tax return for assessment year (AY) 2015-16 has won his tax dispute before the Income Tax Appellate Tribunal (ITAT), Bangalore.
The tribunal did not rule that the cash deposits were automatically tax-free. Instead, it quashed the reassessment proceedings after finding that the income tax department’s Section 148 notice was issued beyond the permissible limitation period, according to an Economic Times report on the case.
The case arose after information available under the Central Board of Direct Taxes’ (CBDT) risk management system flagged several transactions in the taxpayer’s bank accounts. These included a ₹13 lakh cash deposit in Bank of Baroda, a ₹60 lakh cash deposit in Canara Bank, another ₹60 lakh through two cash deposits of ₹50,000 or more, and ₹12,701 of bank interest. The transactions together amounted to ₹1,33,12,701.
The taxpayer’s stated sources of income included agriculture and interest from savings bank accounts. Since no ITR had been filed for the year, the department initiated reassessment proceedings.
Income tax notice came after the limitation deadline
The Assessing Officer first issued a notice under Section 148A(b) on 26 March 2022, asking the taxpayer to explain why reassessment proceedings should not be initiated. The taxpayer did not respond to the notice.
On 26 April 2022, the Assessing Officer passed an order under Section 148A(d) and issued the consequential notice under Section 148 for AY 2015-16. The taxpayer subsequently filed an ITR, but it was treated as invalid because it was not e-verified. The assessment proceedings continued and the Assessing Officer eventually determined his total income at about ₹48.85 lakh.
The taxpayer challenged the reassessment before the Commissioner of Income Tax (Appeals), but lost. He then approached the ITAT Bangalore.
The central issue before the tribunal was not whether the cash deposits themselves constituted undisclosed income, but whether the department had the legal jurisdiction to reopen AY 2015-16 in the first place.
Why ITAT Bangalore quashed the reassessment
For AY 2015-16, the relevant limitation period under the earlier reassessment regime expired on 31 March 2022. The amended Section 149 also contains a first proviso protecting earlier assessment years from being reopened under the extended limitation regime where such action was not permissible under the old law. The Supreme Court has subsequently clarified this position in its reassessment jurisprudence.
In this case, the Section 148 notice was issued on 26 April 2022, 26 days after 31 March. According to ET’s account of the tribunal ruling, even after taking into account the permissible period connected with the Section 148A proceedings, the surviving period did not extend beyond 12 April 2022. The notice issued on 26 April was therefore beyond the permissible period.
The ITAT consequently held the reassessment notice to be invalid and quashed the reassessment order passed under Section 147. This meant that the tax department could not sustain the reassessment proceedings, regardless of the underlying suspicion arising from the cash deposits.
The ruling is significant because it underscores an important distinction for taxpayers that a large cash deposit can trigger scrutiny, but the tax department must still exercise its reassessment powers within the statutory framework. Compliance with the procedural requirements under Section 148A cannot revive a reassessment notice that is otherwise barred by limitation.
Radhika Goyal is Author of Taxconcept Gurugram head office, for deeply reported tax, gst and income tax articles on issues that matter. He splits her time between New Delhi and Bengaluru, and has worked as a reporter, a podcaster and an editor for publications across India.